Online Auction Markets with Increasingly More 'Practical' Items: The Effect of More Bidders on Sellers' Revenue

38 Pages Posted: 4 Aug 2006

See all articles by Ho-mu Lee

Ho-mu Lee

KAIST Graduate School of Management

Byong-Hun Ahn

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Management

Date Written: May 1, 2006

Abstract

Recently "practicals" such as computers and clothes account for a substantial amount of the total volume in online auction marketplaces. However, as bidders for practicals may easily find the same goods elsewhere, it is likely that they bid less aggressively than bidders of rare items such as collectibles. We present a model that incorporates the probability that a bidder will find goods identical to an auctioned item elsewhere. Based on the model and relevant actual auction data, it is argued that when the probability is close either to zero or to one, an increasing number of bidders do not improve revenue as much as when the probability is in a middle range. This paper is concluded with the implications for the viability of small auction-based online marketplaces as well as for a caveat to sellers in using promotional options.

Keywords: online auctions, auction and posted-price selling, online auction marketplaces, number of bidders, auction revenue

JEL Classification: D44

Suggested Citation

Lee, Ho-mu and Ahn, Byong-Hun, Online Auction Markets with Increasingly More 'Practical' Items: The Effect of More Bidders on Sellers' Revenue (May 1, 2006). Available at SSRN: https://ssrn.com/abstract=921771 or http://dx.doi.org/10.2139/ssrn.921771

Ho-mu Lee (Contact Author)

KAIST Graduate School of Management ( email )

207-43 Cheongryangri-Dong
Dongdaemun-Ku
Seoul, 130-722
Korea
+82-19-366-4096 (Phone)
+82-2-958-3649 (Fax)

Byong-Hun Ahn

Korea Advanced Institute of Science and Technology (KAIST) - Graduate School of Management ( email )

207-43 Chongnyangni-dong
Dongdaemoon-gu
Seoul, 130-722
Korea
822-958-3633 (Phone)
822-958-3649 (Fax)

HOME PAGE: http://www.kaistgsm.ac.kr/english/

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